Remarkable Improvement at Bio and Food Businesses

The author is an analyst of NH Investment & Securities. She can be reached at mj27@nhqv.com. -- Ed.

 

Excluding the logistics division, CJCJ’s 4Q20 OP likely climbed 24.0% y-y, with earnings improvement being driven by the domestic and overseas processed food and bio businesses. Favorably viewing its strong growth prospects, we maintain CJCJ as our F&B industry top pick.

Re-valuation called for in light of fundamental improvement

We maintain a Buy rating and TP of W600,000 on CJCJ, noting that 2021 is to mark the first full year of collaboration with Schwan’s Company. Going forward, its Bibigo dumplings should become available in over 50% of mainstream US retail stores, given CJCJ’s ongoing signing of new contracts with large-scale distributors, starting with Target and Walmart (sales of frozen Bibigo dumplings at such mainstream stores are recognized as Schwan’s Company sales). Meanwhile, double-digit (%) OP growth is projected to sustain in 2021 at the bio business, backed by improved industry conditions and strong cost competitiveness. We note that business expansion into the biodegradable plastics market is positive in terms of both ESG and earnings. Despite improvement in earnings and fundamentals, CJCJ’s shares are currently trading at a 2021F P/E of only 10x, an excessive undervaluation, in our view.

4Q20 preview: Remarkable improvement at bio and food businesses

Excluding the logistics business, CJCJ is likely to record 4Q20 consolidated sales of W3.477tn (+4.6% y-y) and OP of W213.4bn (+24.0% y-y).

At the bio division, both ASP and sales volume for amino acids (eg, feed additives such as lysine and tryptophan) likely saw double-digit (%) y-y improvement in 4Q20. Bio division OPM likely widened by 1.5%pt y-y.

Despite high-base effect (y-y) due to differences in the timing of the Chuseok and Lunar New Year holidays, domestic processed food sales likely registered double-digit (%) y-y expansion in 4Q20. While it is unfortunate that overseas growth is not being fully reflected in earnings due to the recently strong won, such forex conditions are also helping to offset a rise in raw material costs.

At the feed division, OP decline was likely less severe than feared (4Q20E OP: W39.8bn). For 4Q20, the average pork price in Vietnam is estimated at VND65,000/kg.

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution